Latest Home Buyers Exhaust Income: Survey
ABCNews has a Reuters survey on consumer spending. "Home sales rebounded sharply in the most recent month, but surprisingly, we have not seen a corresponding uptick in sales of home-related goods."
"As we're seeing more lower to middle income households enter the housing market, there is less disposable income to furnish their new homes."
A reader sent in this link, which includes a quote by Robert Prechter. "Near the end of a major expansion, few creditors expect default, which is why they lend freely to weak borrowers. Few borrowers expect their fortunes to change, which is why they borrow freely. Deflation involves a substantial amount of involuntary debt liquidation because almost no one expects deflation before it starts."
8 Comments:
"I Want My Safety Net"
http://www.businessweek.com/magazine/content/05_20/b3933001_mz001.htm
In another blog post on this site, a linked Washington Post article relates the story of a fellow who "... By refinancing the ... property twice in the past three years, ... has been able to take nearly $300,000 in cash out of his growing equity and plow it back ..."
I don't understand -- how do these people make the monthly payments that result from this borrowing? Presumably, this person was not re-financing a mortgage that had been higher than 7-8%; after a couple of re-fi's, shouldn't he have received a serious hit in monthly payments? True, the value of the home was not revealed, so if this loan was only 10% of the value, for example, it could be a wash. But I am baffled by the psychology that spurs so many people to reduce their equity, while increasing their payments, for anything but necessary/emergency cash needs. Guess it's why I'm the only one who hasn't been to Vegas.
Living space: Can more add up to less?
Interesting article. I'm anticipating a lot of miserable people with giant houses and no money in a few years. Here's a quote:
"If you can afford a 70,000-square-foot house, that's dandy," he says. "But if you have a stable income that affords you a 1,000-square-foot house and you buy a 3,000-square-foot one, and you're working two jobs and you never see your family, that happiness you were seeking goes out the same window that you thought had such a good view."
http://seattletimes.nwsource.com/html/realestate/2002266023_homesize08.html?syndication=rss
We just sold our McMansion. The water bills in this area are $80 a month year-round, and forget summer watering. That would quickly skyrocket the bill to $300 or more a month (3/4 acre). The heating bills were $500 a month from November to February, and we're not all that toasty warm either. The summer bills weren't so bad, thankfully. But the builder cut corners on leaks and when the wind blows in the winter it is frigid in the house.
I want to build my next house with a geothermal heating/cooling system and structural insulated panels and spot water heaters. I have to run and run the water to wait for the hot water in this McMansion.
A funny side-note. I called a rental agency today about their listings. We gross $6000 a month (net 4800) (one income and I get to stay home with the kids :-). The lady said they only allow people to spend 25% of their monthly intake on rent. So for us that would be about $1500 max. She would like us to spend $1400. This is about average rent for a house that sells for $400K here. (DC suburbs) But a mortgage company just offered us a loan to buy a house (415K). 2-year ARM, Interest Only, no down payment, and total PITI payments of $2800 a month. The mortgage company is allowing us twice the risk of the rental company, and more when you consider repairs. (Our tax break only amounts to $300 a month because we have one income and three kids, so the savings there aren't that dramatic either).
Anonymous 12:45 PM
That pretty much sums up the whole mess.
Nice post!
Pete from OC
Anon 12:48:
"$6000 a month (net 4800)" ?
How is that possible - it would mean you are only paying 20% of your income to fed taxes, state taxes, payroll taxes, etc... ???
So the mortgage companies feels more competitive pressure than landlords?
Or is it because the mortgage is supposedly "asset" backed?
It is so sad that a business is being driven to near-certain financial destruction by the pressure to stay competitive.
$1400 is going to get you a real shitbox of a house in the DC area, at least on the VA side. It's going to be built in 1950, and <1000 sq feet. Unless you look somewhere really far out and get a townhouse.
25% of income is very conservative. Don't they usually use about 40% of income (total loans) for a mortgage? This rental company must have a stick up its ass. I wouldn't rent from an agency wants to snoop regarding income. A better choice is to deal with a private individual or a realtor where the realtor is only marketing it.
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